M Global IdeaGlobal Macro StrategistPatience You Must HaveMorgan Stanley & Co. LLCMatthew HornbachStrategist Matthew.Hornbach@morganstanley.com +1 212 761-1837 Guneet Dhingra, CFAStrategist Guneet.Dhingra@morganstanley.com +1 212 761-1445 Andrew M WatrousStrategist Andrew.Watrous@morganstanley.com +1 212 761-5287 Efrain A Tejeda, CFAStrategist Efrain.Tejeda@morganstanley.com +1 212 761-3529 Martin W Tobias, CFAStrategist Martin.Tobias@morganstanley.com +1 212 761-6076 Francesco GrechiStrategist Francesco.Grechi@morganstanley.com +1 212 761-1009 Zoe K StraussStrategist Zoe.Strauss@morganstanley.com +1 212 761-0407 Allen F LiuStrategist Allen.Liu@morganstanley.com +1 212 761-6049 Morgan Stanley & Co. International plc+James K LordStrategist James.Lord@morganstanley.com +44 20 7677-3254 David S. Adams, CFAStrategist David.S.Adams@morganstanley.com +44 20 7425-3518 Eric S OynoyanStrategist Eric.Oynoyan@morganstanley.com +44 20 7425-1945 Wanting LowStrategist Wanting.Low@morganstanley.com +44 20 7425-6841 Lorenzo TestaStrategist Lorenzo.Testa@morganstanley.com +44 20 7677-0337 Fabio Bassanin, CFAStrategist Fabio.Bassanin@morganstanley.com +44 20 7425-1869 Marie-Anais C FrancoisStrategist Marie-Anais.Francois@morganstanley.com +44 20 7425-1877 Dominic J KrummenacherStrategist Dominic.Krummenacher@morganstanley.com +44 20 7425-9781 Investors like to sprint out of the gates to start the New Year. But adding alpha to portfolios when the consensus soft landing is already priced in requires more patience. We prepare for a bumpy ride while staying patient for now: neutral on duration and the US dollar, but looking to buy dips. Global Macro StrategyWe discuss the importance of central bank reaction functions to investors and how upcoming US inflation data may change investor perceptions of the Fed's now-more-balanced risk assessment. We also discuss our move to a neutral stance on the USD.Interest Rate StrategyWe stay neutral on duration, but look to add on dips. We maintain long 10s on 5s10s30s butterfly. We maintain our EUR 2y1y vs 1y1y flattener and tactical EUR 2m10y 3.00%/3.30% swaption payer. In cash, we keep our structural short 10y BTP versus Bund and 10s30s OAT ASW box, and close our long 10y Austria versus Belgium. We keep our short 15y ASW and maintain our tactical paying 2s5s10s SONIA fly position. In Japan, we maintain TONA OIS 2s5s steepener (DV01 1.5 vs 1), receive 10y OIS vs. sell 30y JGBs (DV01 1.5 vs 1), and sell 30y JGB ASW.Currency & Foreign ExchangeWe turn neutral on the USD, though see risks still biased to the upside. We pivot short EUR/USD to short EUR/JPY. We take note of progress on the Riksbank's hedging program to find it near completion, while SEK remains sensitive to risk. We discuss the relationship between USD and foreign currency credit. We introduce a high-frequency fair value model, which suggests that AUD is undervalued relative to the USD.Inflation-Linked Bonds...
